Real Estate Recovery or Not?
2012 Predictions By the Pro’s Infographic
Data, data everywhere, but what should you believe? Are we on, in the middle, or at the tail of a deflating real estate bubble? Is there a Florida real estate bubble?
There is A LOT of conflicting data emerging about the 2012 real estate market and 2012 real estate transactions. Case-Shiller has emerged as the leading index of real estate values. The Q4 2011 S&P/Case-Shiller index (1) shows continuing declines in real estate values with quarter over quarter declines of 1.1-1.2% and annual declines of 3.0-3.4%. RealtyTrac is the leading source of foreclosure data. On January 12, 2012, RealtyTrac published (2) surprisingly good news showing a 33% decline in the number of homes in foreclosure from 2010 to 2011. The National Association of Realtors (NAR) Chief Economist Lawrence is projecting a modest 4.7% increase in real estate transactions with a 2.0% increase in real estate values in 2012 vs. 2011. But, on December 19, 2011, NAR was forced to re-state historical homes sold data (3) due to “upward drift” of their core homes sold benchmarks, which historically have been based on feeds from the multiple listing service (MLS).
So what should you believe? Nearly all data on real estate transactions and real estate values is historical; it does not forecast the future and may not reflect the situation in your local market. Real estate is inherently local, so if the national real estate market is in decline or on the mend, what does that say about your local market? Does a national real estate bubble portend a Florida real estate bubble? Or a bubble in Fort Myers, or Sanibel Island specifically.
The largest real estate social network ActiveRain Corp surveyed 1,835 real estate agents and real estate brokers in the US and Canada to understand if the real estate market and economy are poised for recovery in 2012, both nationwide and in local markets.
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A Bottom of the American Real Estate Market
American real estate agents expect the US real estate market to be largely flat from 2011 to 2012. Real estate agents predict that real estate values will be flat from 2011 to 2012, signaling a bottom to the real estate market or the end of the real estate bubble. Given historically low interest rates as well as a bottoming of real estate values, real estate agents expect that the number of real estate transactions and new construction starts will increase slightly in 2012. Additionally, real estate agents believe local economies are on the mend and we will see improvements in the economy.
With low real estate values, low interest rates and a recovering economy, American real estate agents believe that 2012 is a great time to purchase both single family and multi-family rental properties. Real estate agents feel that single family homes and luxury homes represent great investment opportunities. What did real estate agents think are the worst opportunities in the 2012 real estate market? Due to the glut of inventory in the real estate market due to short-sales and foreclosures, new construction condominiums, new construction single family homes, and land for construction were rated as the worst investment opportunities.
What’s the Problem? The Banks, Stupid!
When polled about the biggest challenges facing the real estate market and economy, real estate agents rated bank related issues the highest. The biggest challenges were: 1) short sales, 2) ability to finance a new home purchase / loan qualifications, and 3) foreclosures. The significant shadow inventory caused by short sales and foreclosures continues to drag on real estate values. Though interest rates are at historical lows, increased loan qualifications are preventing first time home buyers from purchasing homes and current home owners from trading up into new homes.
We would have expected unemployment to be a greater concern to real estate agent.s Persistently high unemployment was ONLY the fourth concern to real estate agents, which was surprising given how the poor economy and lack of jobs has dominated the news headlines for the past 24 months.
Local Opportunities, Local Problems
From a local market perspective, the 2012 ActiveRain real estate survey shows markets where real estate agents are significantly more optimistic and others in which real estate agents are concerned about 2012. Based on our survey data, the ActiveRain real estate network has created a real estate confidence index and ranked the top real estate markets.
Below is a list of the TOP 10 and BOTTOM 10 real estate markets ranked by real estate agent confidence.
See real estate confidence in your local real estate market.
Key Trends in Top Markets
Low Cost of Living Markets Rule: Low interest rates and low cost of living have attracted buyers and relocations back into these markets. Even though the general economy is not as robust as anyone would like, home buyers are adjusting lifestyles to find markets with low cost of living and reasonable housing prices. Applicable markets: Ft. Myers, Austin, Boise, San Antonio, Denver, Dallas, Nashville, Houston, Salt Lake City
Invasion of the Snowbirds: Senior Housing & Second Homes: Seniors and those planning for retirement have returned to the South. Seniors are taking advantage of low priced housing inventory in the Sun Belt and low interest rates to buy a retirement home or a second home in a warmer climate. Many of these buyers have saved for lifetime and 2012 represents a great opportunity to buy while prices and interest rates are low. Seniors are targeting markets with low cost of living for retirement. Applicable Markets: Ft Myers, Austin, San Antonio, Nashville, Miami, Salt Lake City
International Buyers: International home buyers are taking advantage of a weak dollar and low real estate values. Florida is the biggest beneficiary of international buyer interest. Miami is reporting strong home purchase market based on International cash transactions.
Deep in the Heart of Texas: No other state has FOUR major cities listed as growth markets. So what is going on in Texas? Texas represents exactly what every home buyer should be looking for: low cost of living, low cost housing, and job growth. Throw in no state income tax and Texas is looking a lot more appealing than California. Texas is attracting many large corporations to set up headquarters and operations in the state. This is especially true in Austin. Finally Texas has a great mix of technology companies AND energy companies (oil & gas and renewable energy). See below. Applicable Markets: Austin, Dallas, San Antonio, Houston
Technology and Energy Industries: Even in the current down market, technology and energy are growth industries driving job creation. Though most think of San Francisco, Boston, New York and Seattle when we think of technology. Secondary markets participating in technology and energy job growth are likely good real estate markets in 2012, due to low cost of living and high demand for skilled jobs. Markets: Austin, San Antonio, Denver, Dallas, Houston, Salt Lake City
Investment Property: Low interest rates, low real estate values, and rising rents due to job growth is a great investment proposition. A number of the lower cost of living and lower real estate value markets are reporting growth driven by investors coming into the market looking for deals. Applicable Markets: Boise, Nashville, Salt Lake City, Austin, San Antonio
Key Trends in Poor Markets
High Cost of Living, High Real Estate Values: Though interest rates are historicly low, cities with expensive housing and high costs of living are suffering. Tightened loan standards are preventing home buyers from entering the market. Families are relocating to lower cost of living markets. The high cities with high real estate values are also suffering the most from the shadow inventory of foreclosures and short sales. Applicable markets: New York, Los Angeles, Chicago, San Diego
California: Californian cities benefited from the greatest price increases during the real estate bubble. Simultaneously California has suffered the greatest in the downturn with the highest numbers of foreclosures and short sales in the country. California is also facing a major budget deficit of $XBn leading to reductions in government services, increased class sizes and increased taxes. Applicable markets: Los Angeles, San Diego, Sacramento
High Shadow Inventory: Large numbers of foreclosures and short sales continue to depress real estate prices in many markets. It will take several more years for many markets to stabilize. Buyers continue to wait on the sideline for conditions to improve. Applicable markets: Reno, Sacramento, Chicago, Springfield, Los Angeles, Philadelphia
High Unemployment: Persistently high unemployment without an economic catalyst is preventing home buyers from entering the market and locking sellers into their current homes. Applicable markets: Philadelphia, Los Angeles, New York, Chicago, Sacramento, Reno
Reliance on the Finance Industry: Downsizing in the banking industry combined with reduction in Wall Street bonuses has caused challenges in markets reliant on banking, Wall Street layoffs and a lack luster stock market have affected the highest cost markets like NYC most directly. Applicable markets: New York , Chicago, Los Angeles, Philadelphia
Unlike the United States, Canadian real estate agents are fairly optimistic about 2012. Canadian real estate agents believe that all core metrics of the Canadian real estate market and economy will be increasing in 2012. Real estate values, real estate transactions, new construction starts, and the local economy are project to increase slightly in 2012. Canada continues to have a strong banking system, a strong dollar, and low unemployment. Interest rates are low, spurring international investment in Canada.. Canadian confidence continues to be high. Job growth is being driven by the energy industry in Canada.
Few problems are facing the Canadian real estate market or the Canadian economy. Inflation and gas prices are the only problems that the Canadian economy seems to be facing. Unlike the US real estate market, Canada any issues with short sales or foreclosures.
Canadian real estate agents feel like single family homes, investment properties for rental and condominiums all represent good investment opportunities, due to historically low interest rates. Interestingly, Canadian real estate agents are slightly LESS optimistic about real estate as investment opportunity when compared to American real estate agents
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(1) Q4 2011 S&P/Case-Shiller index
(2) RealtyTrac 2011 Year End Foreclosure Report
(3) NAR Re-Benchmarking of Home Sales